Calpine to Acquire Exploration Firm Encal
Calpine Corp., a U.S. power plant developer, on Thursday agreed to buy Canadian exploration company Encal Energy Ltd. for about $1 billion in stock to more than double its natural gas reserves.
With the purchase, San Jose-based Calpine would get access to gas pipelines linking Western Canada to California and the Eastern U.S. The company’s gas production in North America would more than double to 390 million cubic feet per day.
Encal has about 1 trillion cubic feet of reserves in British Columbia and Alberta, boosting Calpine’s total to about 1.7 trillion cubic feet.
“This is a tremendous hedge for them against rising gas prices,” said Linda Byus, a Dresdner Kleinwort Wasserstein analyst. “This will provide essentially half of their gas needs, and it’s a potential moneymaker too.”
Calpine has been buying natural gas fields and pipelines to supply its power plants. That helped the company keep costs down last year as gas prices more than tripled.
Calpine shares rose $3.43 to close at $45.50 on the New York Stock Exchange. U.S. shares of Encal fell 39 cents to close at $7.80.
After the purchase, Calpine said it will be able to use its own gas supplies to fuel production of about 2,300 megawatts of electricity, enough to light 2.3 million homes. Calpine has some 33,500 megawatts of capacity in operation, under construction or in development in 27 states and Canada.
Calpine, which now produces about 5,000 megawatts of power, wants to have enough gas to meet about 25% of its generating needs, spokesman Kent Robertson said.
“All of their new capacity coming online is [fueled by] gas,” said analyst Tara Gately of Loomis Sayles & Co., which owns 819,400 Calpine shares. “Gas is definitely a challenge.”
Gas prices surged Dec. 27 to a record closing price of $9.98 per million British thermal units on the New York Mercantile Exchange. At the start of last year, prices barely topped $2. Gas closed Thursday at $6.16 in Nymex trading.
Encal said its shareholders would get stock valued at about $8 a share. That’s 10% more than Encal’s closing price a week ago, before the Calgary, Canada-based company said it was in merger talks. Encal had $269.2 million in debt at the end of its third quarter.
The acquisition would add about 20 cents a share to earnings in 2001 and 2002, Calpine said. Calpine is expected to earn $1.31 a share this year, the average estimate of analysts surveyed by First Call/Thomson Financial.
Calpine would probably sell Encal’s oil fields, analyst Kit Konolige of Morgan Stanley Dean Witter & Co. wrote in a report. He boosted his forecast for Calpine’s earnings to $1.55 from $1.30 for this year, and to $1.75 from $1.55 next year.
Calpine bought TriGas Exploration Inc. in November for $103 million and closely held Quintana Minerals Canada Corp. for $97.6 million in July. Both are based in Calgary.
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Energized Stock
Calpine’s strategy of buying natural gas fields and pipelines to help keep costs down as energy prices rise has boosted its stock price. Shares more than doubled in the past year.
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Calpine, monthly closes and latest on the New York Stock Exchange
Thursday: $45.50, up $3.43
Source: Bloomberg News
